What is Day Trading?

Day trading (and trading in general) is the buying and selling of various financial instruments, such as futures, options, currencies, and stocks, with the goal of making a profit from the difference between the buying price and the selling price. Day trading differs slightly from other styles of trading in that positions are rarely (if ever) held overnight or when the market being traded is closed.

Day trading was originally only available to financial companies (such as banks) because only they had access to the exchanges and market data. But with recent technology such as the Internet, individual traders now have direct access to the same exchanges and market data and can make the same trades at very low cost.

Trading Styles

There are several different styles of day trading, suited to different day trader personalities. The styles range from short-term trading such as scalping where positions are only held for a few seconds or minutes, to longer-term swing and position trading where a position may be held throughout the trading day. Most day trading systems have a lot of flexibility and can have open positions for anywhere from a few minutes to a few hours, depending upon how the trade is doing (whether it is in profit).

Some day traders will trade multiple styles, but most traders will choose a single style and only take that type of trade.​

Day trading also has different types of trade, such as trend trades, counter-trend trades, and ranging trades. Trend trades are trades in the direction of the current price movement (i.e. buying if the price is moving up), and counter-trend trades are trades against the direction of the current price movement (i.e. selling if the price is moving up). Ranging trades are trades that go back and forth between two prices, and are used when the market is moving sideways. Most day traders will choose a single type of trade, but some traders will take different types, and choose which one to trade depending upon the current condition of the market.

In addition to the style and type of day trading, there are other variances between day traders. Some day traders like to make many trades throughout the trading day, while others prefer to wait for what they consider the best conditions for their trade, and perhaps only make one trade per day. However many trades are made, the trading process that is used, and the desired goal of making a profit, are the same.

Markets

There are many different financial instruments, or markets, that can be day traded, and they are offered by various exchanges throughout the world. The main types of day trading markets are futures, options, currencies, and stock markets. Within these types, there are groups of markets based on stock indexes (such as the Dow Jones, and the DAX), currency exchange rates (such as the Euro to US Dollar exchange rate), and commodities (such as gold, and oil). Day traders can have access to all of the exchanges and their markets via direct access brokers, so called because they offer direct access to the exchange, which provides faster trade execution at lower cost.